The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

Cutting farm subsidies v. reform

Posted by

Share this story:

Taking a whack at price-dependent farm subsidies could save taxpayers money later and make sure our farm programs don’t hurt poor farmers in developing countries.

It’s a measure of how difficult things have gotten in Washington that cutting farm subsidies is now seen as something relatively easy that both Democrats and Republicans can agree on. Last week, the Washington Post reported that Republicans offered up farm subsidies as a ripe target for budget cutting.

It wasn’t so long ago that farm subsidies were considered invincible and the “iron triangle” of farm organizations, farm state legislators, and the behemoth US Agriculture Department had the situation on lock down.

Oxfam and a coalition of other disgruntled interests and pie-eyed idealists made case for reform of the Farm Bill in 2007. We rallied around an alternative proposal that would have cut commodity subsidies and shifted funds to other purposes, including reducing the federal debt. It was a great lobby effort, an innovative campaign, a reasonable objective, and quite unsuccessful. In the House, we lost on a vote of 309 to 117.

Farmers Seydou Coulbaly from Mali and Leo Tammi from Virginia.  The Farm Bill harms rural communities around the world and does little to help poor farmers in the US. Photo by Darren Santos.
Farmers Seydou Coulbaly from Mali and Leo Tammi from Virginia. The Farm Bill harms rural communities around the world and does little to help poor farmers in the US. Photo by Darren Santos.

Times have changed. With the country facing a huge budget deficit, and a poor economy, the public tolerance has shrunk for billions of government payments that largely go to the biggest farmers.

The problem is that there isn’t that much money in cutting farm payments these days. Most farm subsidies are price-dependent, meaning they are bigger if prices are low and smaller if prices are high. Prices are hitting historic highs for many commodities, which means the bulk of these subsidies are not paying out very much money. Over time, the price-dependent subsidies have been the bulk of farm subsidies. They also distort agriculture markets by encouraging farmers to depend on payments from the government rather managing their business and hedging risks.

So – these days there’s only about $5b in farm payments being made, and these payments are not considered as damaging in international trade terms because they are not based on prices. Not nearly as juicy as when the government was regularly paying out $20-$25b a year when farm prices were lower. Corn subsidies were more than $10 billion in 2005. In 2009, they were less than $4b.

Still, Congress will probably make some cuts. But these cuts won’t really be reform and won’t produce much long-term savings unless they tackle the price-dependent subsidies. Taking a whack at those subsidies could save taxpayers money later and make sure our farm programs don’t hurt poor farmers in developing countries.

For more, see:

Eight budget cuts that would help poor people


“Fairness in the fields”

Join the conversation

  1.  avatarTim Gieseke

    A positive reform dialogue is remote when the terms “juicy” are used to describe a payment that was received by a farmer when they where in the red. I think Oxfam has some legitimate concerns, but when you think or portray that your crosshairs only fall on the largest ag enterprises you miss your point, or the tipping point of the discussion. Reform in farm policy is needed, but if you are going to discuss reform and describe it as “juicy” then you are going to have to put some meat on the bones. Real reform is shifting the governance of natural resources from the center of government into the realm of the private sector. If your issue is evironmental externalities related to agricultural production then you will appreciate this scenario. At a recent Mn Board of Water & Soil Resource meeting, Rich Batiuk, EPA described the extensive effort of government in the Chesapeake Bay watershed. One of his last statements was quite discerning. He said that one of the major shortcomings was that this governance model does not have the capacity to account for conservation practices that a farmer applies with his own money, time and labor. I then realized that as a farmer, not only is the conservation practices I apply on my land a positive economic externality, but also an externality in the government-centric conservation delivery system. Fortunately, if one shifts the governance to broaden the participation, such as with an ecocommerce model, it captures all resource management activities and brings this ecological dimenstion into the agro-economy.

    Reply
  2. Pingback: Distortions versus Outlays | Cato @ Liberty

  3. gawain kripke

    Hi Tim,

    Sorry you objected to the term “juicy”. I’m just trying to capture the sentiment of the budget cutters – who are looking at every pot of money for cuts. These days farm subsidies don’t offer much savings to budget cutters because prices are high.

    I think your discussion of positive externalities is right on. The government does a very poor and aproximate job of capturing negative externalities or incentivizing positive ones. But, I have to say, I’m skeptical that the private sector or “free market” is likely to do a better job. Capturing and reflecting these externalities in prices and behaviors has little historical precedent and most market actors would be reluctant to do something serious voluntarily.

    So, I remain pretty convinced that government, policy, and ultimately political action is needed to move us to a system that doesn’t undervalue natural resources and public goods.

    Reply
  4. Pingback: Farm Bill Critics Claim Partial Victory Despite Stalemate | Irascible Musings

  5. Pingback: Farm Bill Critics Claim Partial Victory Despite Stalemate | news technology

Leave a Reply

Your email address will not be published. Required fields are marked *